Posted on 09/10/2005 7:01:45 AM PDT by LS
We are about to see some of the laws of economics in action---as well as some of the laws of politics---and the result will be that the post-Katrina economy is going to be pretty good.
First, gas prices are already falling. Steve Forbes, about a week before Katrina, predicted much lower gas prices later this year. But as foreign nations opened their reserves (out of pity, greed, or generosity), the prices came a-tumblin' down. There will be a constriction in refining capacity, no doubt, but this may be made up with imports. At any rate, the "$6 a gallon gas" that the pundits immediately warned about does not seem to be in the offing.
Second, the laws of economics say that every dollar spent results in someone having that dollar. Federal, state, local, and charitable aid given to the Gulf Coast MUST GO SOMEWHERE and (assuming that the piggy bureaucrats don't get it all) it will end up in the hands of private contractors, sellers, and builders. This will cause a mini-boom, as all disasters do. There may be some price gouging on lumber and other construction items, but you are more likely to see price SHIFTING, as Home Depot and Lowes suck lumber out of existing stores elsewhere in the country. That will result in a slowdown of new home building elsewhere. Bad news? Not really. In my neighborhood there was a slowdown in existing home sales because new homes, relatively, were a better deal. Some dozen "for sale" signs dotted our southern OH highway on the way to King's Island as new developments went up everywhere. None were selling (save ours: and we got our price). Now, I predict all those will immediately start to move.
New home builders will take a hit temporarily, but they were doing pretty well up until now, so they should have a good reserve. (Again, in my area, million-dollar-homes are popping up like sunflowers, or, perhaps more appropriately, Buckeyes).
Normally, economics would say that this would result in higher prices for things, but that's where politics comes into play: no politician wants to appear to be contributing to a disaster, so I predict Greenspan (essentially a political appointee) and the Fed will either leave interest rates alone or even lower them to facilitate "recovery." This will give the new-home builders their second wind.
Wall Street seems to share my assessment, surging this week in the wake of nothing but bad news from the media.
Oh, and have you heard the news from Iraq? I thought not, because there really IS none---at least, no bad news. In a week, there has been a grand total of one bombing, that killed 10. By the standards of the last six months, this is an utterly peaceful week.
Now, did the news media not cover it because there was no violence . . . or was there no violence because the news media wasn't covering it? I submit it is the latter: the terrorists' audience is the U.S. public, and when we aren't watching, they don't have a stage. Unfortunately for the people in the Gulf, Katrina is the best thing that ever happened to Iraq since the U.S. invasion. If our obsessed media keeps on Katrina, Iraq may well be up and running, peaceful, and making progress before they ever figure it out.
This, too, contributes to long-term economic stability and U.S. expansion. And lower gas prices, a Dow that is inclining up, and a quiet Iraq all lift Bush and the Republicans, NOT the Dems. Anyone at DU who still has a brain must have figured this out by now, but it may be too late for their lapdogs in the media to shift coverage away from Katrina.
Actually, it will be another trough for the piggies. Era of small government my ass.
Stand by for all of the Broken Window Fallacy posts. . . . .
Even if the government employees snarf half of the money, it will still be spent *somewhere*.
Mike Rosen (KOA Denver) went through this the other day.
He challanged callers who believed this to go through the city Denver and break windows.
I couldn't resist.
I call it the broken monitor fallacy. I see something which says "We'll all be richer if a city is largely destroyed", I punch the monitor and the economy is improved because I have to spend money for a new monitor and stitches for my hand.
Sigh. Love your book (it has a personal place of honor in my bathroom library).
But clearly you have not considered the Broken Window Fallacy.
Before Katrina, our economy had $100 billion (or whatever the final cost is) and an economically vibrant Gulf Coast.
But once the recovery is complete, all we'll have is the Gulf Coast.
That $100 billion would have been in the economy anyway. It just wouldn't have gone to replace what we already had.
No way that $100 billion isn't a loss to our economy, even though I agree that some people will make a lot of money from reconstruction. But their gain is merely someone else's loss (i.e. the people who would have earned that $100 billion had it not gone to reconstruction). There is no real gain to the economy as a whole.
If disasters created economic booms, then we could create the world's strongest economy by nuking one or two of our own cities every year.
Walter Williams has a column just out which disagrees completely with this common "hurricanes are great for the economy" assessment.
I'm out of state on a clunky borrowed WebTV, or I would link it and quote it.
There can't be too many of those. A lot of folks need educating.
Thanks for listening.
While disasters may not be good for the economy, keep in mind that the massive relief effort will include a large dollar value in tax-deductible contributions to charities. So every dollar I send to the Red Cross (hypothetically speaking) results in 35 cents less that I pay in Federal and state taxes. Most charities are more efficient at spending money than governments are, so there is more of an economic benefit to fixing this "broken window" than a normal one.
Maybe those charities are more efficient, but the fact remains that if you didn't have to give your money to charity to rebuild what we once had, both you and the economy would be much better off.
As for the deductibility piece, it appears that you are saying that you end up having more money because your charitable contribution is deductible. I don't get that reasoning at all.
Chairty is great, and while it certainly is a benefit to the recipient, it is definitely an economic loss to the donor. The fact that people are willing to take economic losses in order to help others is admirable, but it doesn't change the fact that there is a loss here.
"Government employees" and "the well-connected" are some of the same people, especially in 3rd world polities like Louisiana. Either way, from an economic standpoint, the money will purchase something, to the benefit of some seller, and on down the line.
In the larger picture, as Thomas Sowell observes, the situation is a net loss for the economy, because every dollar spent on rebuilding/repairing/restoring is a dollar that couldn't be spent on a new, productive use. Some will benefit greatly, but for the economy as a whole, opportunities are lost.
I agree.
Walter Williams article:
http://www.townhall.com/columnists/walterwilliams/ww20050907.shtml
Frederic Bastiat (1801-1850), a great French economist, said in his pamphlet "What is Seen and What is Not Seen": "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." What economists Chan and Woodward can see are the jobs and construction boom created by repairing hurricane destruction. What they can't see, and thus ignore, is what those resources would have been used for had there not been hurricane destruction.
As for the deductibility piece, it appears that you are saying that you end up having more money because your charitable contribution is deductible. I don't get that reasoning at all.
The deductibility piece is what enables someone (either myself or someone else) to buy more lumber. I have to earn $10,000 to buy $6,500 worth of lumber, but if I write a $10,000 check to a relief organization it could buy them about $8,500 worth of lumber. Granted -- I myself may not be better off, but Home Depot sells more lumber.
Beyond that, if the money goes through govenrment bureaucracies and they take 80% of it, they get used to having it, and will be looking for ways to replace it when it's gone.
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